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Take the guessing out of when to write off and move out obsolete or ‘aged’ inventory — do it automatically. Do everything you can to sell your company inventory but do not rely on managers to clean inventory. They will not normally do it. Expensed inventory impacts managerial incentive programs if it hits the books as expense and cuts into net profit. This thankless job never gets done and cash sits idle on shelves through the years as stock becomes obsolete.
Steps to clean out old inventory:
- Automate inventory aging: Set up an IT program to age your inventory. Decide cutoff dates and time periods. Write the steps necessary to identify older stock, isolate it from good items and decide who gets rid of it on a scheduled basis.
- Publish reports frequently: Run all of the overstock reports you wish but make aged inventory reports mandatory that identifies those items older than 30 days, 60 days, 90 days, 180 days, one year (you decide the cutoff periods).
- Pay employees to sell off excess inventory: Offer double commissions to sales personnel to move old stock. Create excitement with money and quick cash for turning this company asset into cash. Setup attractive incentives among your sales staff to take action, and get your excess sold off.
- Advertise your inventory: Advertise your old stock on an “overstock” or “clearance items” page on your company website to invite buyers. Keep the listing updated and make it easy for potential buyers to call in, identify what they want and to order the items. Give them 60 day versus 30 day terms if that is appealing to your specific market.
- Write your scrap policy for all to see: Do all of these things but do not neglect to establish a company policy to get rid of these items after a declared period of time. You decide the time period because all industries are different. Your decision may be to sell old inventory at 25 cents on the dollar to auctioneers or middle-men or auction houses or markdown centers. You decide the fate of these items. Just make sure to set up the policy, assign people to clean out the old items, get the stock isolated and then dispose of it as detailed in your company scrap policy.
- Award your sales people to sell scrap: Your sales personnel will know someone who would like to buy scrap inventory for 20% or 30% of the original selling price. Give them a special bonus for selling these designated items. Tell them they have 30 days to sell a list of items and that they are paid the same day the customer writes a check to your company. Thus, if the sales person sells inventory tomorrow C.O.D, as the customer truck leaves the shipping dock, go to accounting and cut the sales person a commission check. This will motivate them tremendously.
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